Daily Development for
Thursday, November 6, 1997

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

BROKERS; BROKER'S LIEN: Broker that finds property for lessee to lease while acting on behalf of and being paid by lessee is not entitled to file a lien against property under provision of mechanic's lien law permitting a lien to be filed for the acquisition of a lessee for a lessor.

Robert Plan Corp. v. Greiner-Maltz Co., 655 N.Y.S.2d 648 (App. Div. 1997).

At issue in this case was an interpretation of a section of New York's lien law which expanded the definition of "improvement" to include the performance of certain specified real estate brokerage services and therefore enabled real estate brokers to file mechanic's liens. Here, the defendant entered into a brokerage commission agreement which gave the plaintiff the exclusive right to locate property for its purchase or lease. When a dispute over payment of a commission arose, the broker sued.

The lower court held that the lien was valid but the higher court reversed because the statute said that the a lien could be had for payment for performance of real estate services in obtaining a lessee for a lessor, for a term of more than three years of non residential property. The defendant argued, and the court agreed, that the statute was only intended to permit a lien filing against a property owner that refused to pay a brokerage commission to a broker who finds that property owner a lessee. Here, the lessee had commissioned the broker to find a lessor for its property/operations and the law did not apply. Since the contract was not with the owner, a mechanic's lien could not be filed.

Comment 1: There has been a proliferation of broker's lien statutes around the country. Usually such flurries of legislative activity are guided by the National Association of Realtors. Thus it is possible that the New York language has counterparts in other parts of the country. The case may be valuable outside of New York for that reason. But note that the amendment here was enacted in 1982, and may not relate to the local rash of enactments.

Comment 2: Often a broker will function as a lessee's broker but will require that the landlord agree to pay the commission upon completion of the lease. In fact, in most areas with which the editor is familiar, the landlord even advertises willingness to "cooperate with brokers" and, in any event, this is the trade practice. Under such circumstances, it would appear that the commission is being provided to the broker for delivering the tenant, even though the broker is the tenant's broker.

The court here indicates that its reading of the New York lien law is that there must be a contract between the lessor and broker:

"While the statute does not explicitly state that the contract must be with the owner, the Legislature's use of the word "lessee" reflects its intention to restrict application of the provicision to borkerage contracts between a property owner/lessor and a broker."

This does not necessarily indicate that the contract must provide that the broker serve as the lessor's broker, but it does suggest that there must be some contractual undertaking between broker and lessor. There is at least a good argument that if the requirement arose only in the lease agreement or as an implied part of the lease pursuant to trade practice, this would not be sufficient to trigger lien rights. Since many state statutes now require that a contract between broker and client be in writing and preceded by elaborate disclosures, the requirement of a written brokerage agreement might be a considerable nuisance for many commercial leasing brokers, but in New York, at least, it may be the only way to be confident of having a lienable commission. Other states may present similar problems.

Comment 3: Other states may permit the broker to lien the lessee's leasehold estate only. Although such a lien may have some threat value, it is not likely to be an interest readily saleable at a lien foreclosure sale.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1-6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Stacy Walter at the ABA. (312) 988 5260 or stacywalter@staff.abanet.org

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.